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Better Buy: AbbVie vs. Johnson & Johnson

Which stock wins in a matchup between these two healthcare giants?

AbbVie(NYSE:ABBV) and Johnson & Johnson(NYSE:JNJ) together market one of the top cancer drugs in the world, Imbruvica. But while the two companies are partners in one area, they compete on other fronts, particularly in immunology.

J&J has been the bigger winner in terms of stock performance over the last 12 months, rising around 9%, with AbbVie's share price dropping 15% during the period. However, past performance doesn't necessarily translate to future results. Which of these two big pharma stocks is the better pick for long-term investors now?

Image source: Getty Images.

The case for AbbVie

Many investors have been leery of AbbVie because the company's top-selling drug, Humira, now faces biosimilar competition in Europe. They're concerned that declining sales for the product that currently contributes over 60% of AbbVie's total revenue will be a weight that's hard to overcome. But AbbVie isn't worried about Humira.

For one thing, more than two-thirds of Humira's sales are generated in the U.S. market. Biosimilar rivals won't be available in the U.S. until 2023, giving AbbVie several more years of huge sales from its top drug. In the meantime, the company claims several products that should deliver strong sales growth, including its blood cancer drugs Imbruvica and Venclexta and endometriosis drug Orilissa.

Even better, AbbVie's pipeline includes several likely winners. The company expects to win U.S. Food and Drug Administration (FDA) approvals for immunology drugs risankizumab and upadacitinib this year. AbbVie thinks the two drugs can combine for incremental annual sales of $10 billion or more by 2025. Overall, the drugmaker expects $35 billion in incremental risk-adjusted sales from drugs other than Humira by 2025 -- more than AbbVie made in total last year with Humira included.

The company also offers a strong dividend that currently yields nearly 5.4%. AbbVie has consistently increased its dividend since being spun off from parent Abbott Labs in 2013.

With AbbVie's share price decline in recent months, the stock's valuation has become increasingly attractive. Shares now trade at less than 8.5 times expected earnings.

The case for Johnson & Johnson

Johnson & Johnson faces headwinds for its top-selling drug, too. Remicade already has biosimilar competition in the U.S. and in Europe. That's not J&J's only challenge, though. The company is also embroiled in controversy (and litigation) over allegations that its baby powder and other talc products have been contaminated by asbestos.

But there are still several reasons for investors to seriously consider buying Johnson & Johnson stock. J&J's scope of operations provides exposure to multiple areas within the healthcare sector. The company isn't just a top drugmaker; Johnson & Johnson also runs multibillion-dollar consumer health and medical device businesses.

J&J has several growth drivers. It stands to benefit from increasing sales of Imbruvica and other fast-rising cancer drugs, Darzalex and Zytiga. Although Remicade's sales are falling, the company's other top immunology drugs -- Simponi, Stelara, and Tremfya -- continue to deliver strong growth. Its consumer and medical device segments should also grow thanks to key acquisitions and launches of new products.

Like AbbVie, Johnson & Johnson claims a strong dividend program. Its dividend yield currently stands at 2.6%. J&J is a Dividend Aristocrat, increasing its dividend for 56 consecutive years.

The healthcare stock isn't as inexpensive as AbbVie, but its valuation still appears to be reasonable. J&J's forward price-to-earnings multiple is 15.3, which is on the low end of its range over the last 10 years.

Better buy

Johnson & Johnson has been a solid stock for investors to include in their portfolios for a long time. In my view, the stock still is a pretty good choice. However, I think that AbbVie is the better pick.

AbbVie's growth prospects appear to be stronger than J&J's. Its dividend yield is much higher. And AbbVie stock is a better bargain. I expect AbbVie to deliver market-beating total returns over the long run.

Author

Keith began writing for the Fool in 2012 and focuses primarily on healthcare investing topics. His background includes serving in management and consulting for the healthcare technology, health insurance, medical device, and pharmacy benefits management industries.
Follow @keithspeights